Magazine

Online Extra: Bob Metcalfe: "We All Knew Better"

August 24, 2003

Bob Metcalfe, the founder of 3Com (COMS) and inventor of the Ethernet network standard, is the author of Metcalfe's Law, which predicts that the value of a network grows exponentially as its user base expands. Still, he believes it's a myth that everyone uses technology equally well, making advancements and productivity hard to quantify. Now, as a venture capitalist with Polaris Venture Partners, Metcalfe is plowing into sensor networks. BusinessWeek's Heather Green recently spoke with Metcalfe, who shared his thoughts on the tech recovery and the reluctance to embrace tech again. Edited excerpts of their conversation follow:

Q: Can technology still provide a competitive advantage?

A: Of course. The problem is measuring productivity. Look at how Intel (INTC) measures it: dollars of revenue per labor hour. We used to have one transistor per chip, now we have many more. Why don't they count that as a productivity gain?

But even if you do buy the idea that since everyone uses [information technology] there isn't a competitive advantage, then so what? Does that mean you can stop using it? And are we to believe that everyone uses it equally well? It would be a miraculous thing if everyone was using IT equally well. The reality is everyone is using it in different ways, from the front office to the back office.

Q: Are people are feeling burned by tech?

A: Everyone is feeling a little bit foolish: Wall Street is, BusinessWeek is, I am. We all knew better, [but] we all walked arm and arm into this. [Now] there's a reluctance to embrace it again. The late 1990s saw the greatest legal creation of wealth. Well, we're seeing the flip side of that.

Startups have a real problem. Selling to the chief information officer is much harder now. Once burned, twice shy, but it's not permanent. We're recovering -- there are already signs it's turning around.

Q: How will this recovery be different?

A: The scale of this downturn is a lot bigger then ones I remember. People ask why the American entrepreneurial economy works so well. One of the reasons is we have such good customers, with the willingness to buy unproven technologies. That went away, which is why it's taking longer to recover. It will come back, although it will be slow in coming back.

Q: What are the promising technologies?

A: 802.11 [a wireless protocol that's key to Wi-Fi] is leading the charge. It changes the places where you can access the network. We have [wired] Ethernet in our home, and my wife asked me to install 802.11. I couldn't get around to it, so finally she just went out and bought it and installed it herself.

Also Google. I don't think people understand how monumentally important it is.

Q: What will Silicon Valley's role be?

A: I moved to Silicon Valley in 1972. Now I have moved back [East]. I think the energy is coming back to Route 128 [in the Boston area]. That being said, Silicon Valley's role isn't going away. The action is spreading somewhat, but the Valley won't go away. It will be less of the tall pole in the tent.

Q: What's the biggest threat?

A: A major repeat of September 11. I have a sense that the economy could come back if we just don't get disrupted.